Option Activity Alert: CLGX, XLY, JDSU, FNF

CLGX – CoreLogic, Inc. – Options volume on the provider of business support services has ballooned to more than twice the number of existing positions on the stock, with calls changing hands more than 20 times for each single put option in action. The spike in demand for calls is no surprise given the 28.6% rally in CoreLogic’s shares to $11.30 today, on news the company hired Greenhill & Co. to help it consider various options that could include putting itself up for sale. Increased activity in CLGX options sent implied volatility on the stock screaming higher to 66.48%, a 79.3% gain over yesterday’s close. Much of the nearer-term positioning in CoreLogic call options today appears to be the work of bullish investors expecting the price of the underlying to continue higher. But, open interest patterns in the calls suggest not all players acted after news of Greenhill & Co.’s hire hit the stands. It looks like some traders picked up 445 of the October $10 and 550 of the Jan. 2012 $10 strike call options yesterday for an average premium of $0.14 and $0.40 apiece, respectively. The values of these positions no doubt exploded overnight, with buyers of these options now paying around $1.53 and $1.64 for the right to purchase shares in CLGX at $10.00 come expiration day in October and January 2012. Although overnight success stories such as these tend to raise an eyebrow or two, there is no evidence as yet to indicate call buyers knew what was coming to them today.

Meanwhile, new bullish stances were initiated on the stock across all available expiries. Call buyers took to the $10 and $12.5 strikes expiring in September and October to presumably get in on the way up. Sizable prints in longer-dated contracts largely traded to the middle of the market. Volume tipped the scales at the Jan. 2012 $12.5 strike where more than 8,300 calls changed hands against 8 open positions. Buyers and sellers drove trading in the $12.5 strike calls, which commanded an average premium of $0.82 apiece. Plain-vanilla call buyers engaged with the higher Jan. 2012 $15 strike, where roughly 1,000 contracts were purchased for an average premium of $0.58 a-pop. Investors long the $15 strike call profit in the event that CoreLogic’s shares surge 37.9% to top $15.58 at expiration next year. Shares in CLGX were up above $15.58 as recently as August 1, before the company warned its second-half profits would miss estimates.

XLY – Consumer Discretionary Select Sector SPDR Fund – Bearish options players targeted the Consumer Discretionary SPDR Fund this morning after data showed American consumer confidence plunged to its lowest in more than two years in August. The dismal confidence report initially dragged shares in the XLY, an exchange-traded fund that tracks the performance of the Consumer Discretionary Select Sector of the S&P 500 Index, down 1.1% to an intraday low of $36.76. Shares in the ETF, which has its largest holdings in McDonald’s Corp., Amazon.com Inc., and Walt Disney Co., have since turned positive to trade 0.50% higher on the session at $37.36 just before 12:00 pm in New York. Though shares in the XLY managed to recover from dismal consumer confidence numbers this morning, at least one options strategist is positioned to see shares in the fund tumble sharply in the next couple of months. It looks like more than 14,300 put options changed hands at the October $30 strike against previously existing open interest of 3,348 contracts. Nearly all of the puts appear to have been purchased outright by one investor who paid an average premium of $0.36 per contract. The put buyer profits if shares in the XLY drop 20.6% from the current price of $37.36 to breach the average breakeven point on the downside at $29.64 at October expiration. The fund’s shares last traded around $29.64 back in July 2010.

JDSU – JDS Uniphase Corp. – Large prints in JDS Uniphase Corp. call options bumped the telecommunications equipment provider onto our ‘most active by options volume’ market scanner this morning. It looks like one bullish strategist may be taking profits off the table and positioning for shares in JDSU to extend gains through October expiration. Shares in JDS Uniphase surged 9.1% in the first half of the session to secure an intraday high of $13.40. Analysts at RBC upped their share price target on JDSU to $18.00 from $16.00. Last Tuesday, when shares in JDSU were trading around $10.50, some 10,000 October $12 strike calls traded to the middle of the market at a premium of $0.67 each. One week later, with shares trading more than 27.0% higher, the now deep in-the-money calls appear to have been sold this morning for a substantially richer premium of $1.78 apiece. Assuming the buyer last week is the same investor selling-to-close the position today, net profits earned in the well-timed bullish bet on JDSU amount to $1.11 per contract. Meanwhile, the purchase of a fresh batch of 15,000 calls up at the October $14 strike for a premium of $0.83 a-pop suggests the same trader may be ramping up optimism on the stock. The new bullish stance positions the call buyer to profit should the price of the underlying stock jump 10.7% over today’s high of $13.40 to surpass the effective breakeven price of $14.83 at expiration day in October. JDSU’s shares last exceeded $14.83 back on July 26. Even with today’s sharp rebound, the stock has lost roughly half of its value in the most recent six month period.

FNF – Fidelity National Financial, Inc. – Call selling on Fidelity National Financial on a day when the company’s shares are up 3.3% at $17.00 may be a sign some strategists see limited room for the stock to run in the near term. Investors exchanged nearly 5,000 calls at the October $17.5 strike against previously existing open interest of just 66 contracts. It looks like all of the calls were sold for an average premium of $0.43 apiece before 12:00 pm on the East Coast. Call sellers keep the full amount of premium received as long as FNF’s shares fail to rally above $17.50 and the options expire worthless. If investors are naked short the call options, they may face unbridled losses should the stock continue to climb. Premium received in exchange for bearing such risk provides limited protection to traders, but insurance runs out and gives way to losses if the stock rallies above the effective breakeven price of $17.93 by expiration.

Andrew Wilkinson is the senior market analyst at Interactive Brokers Group, where he provides daily commentary and analysis on U.S. equity options trading throughout the trading day. Andrew provides webinars designed to explain option-related trading scenarios covering futures, fixed income, forex and equities.

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